Currently, Anheuser-Busch, known for its Budweiser and Bud Light brands, is the
largest player in the $80 billion U.S. beer market with a 39 percent share,
the government’s lawsuit says. Rival MillerCoors LLC has a 26 percent share,
while Mexico’s Modelo is a distant third with a 7 percent stake.

“The department is taking this action to stop a merger between major beer
brewers because it would result in less competition and higher beer prices for
American consumers,” said Bill Baer, assistant attorney general in charge of
the DOJ’s antitrust division, in a press release.

Damage to competition would be severe, the government lawsuit contends, because
MillerCoors tends to follow Anheuser-Busch’s pricing -- while Modelo “has
resisted Anheuser-Busch-led price hikes.”

According to the lawsuit, Anheuser-Busch internal documents say that the
company has felt “increasing pressure” from Modelo as the Mexico City-based
company follows a competitive pricing strategy “directly at odds” with
Anheuser-Busch’s strategy of guiding prices upward.

Last June, Anheuser-Busch, which currently holds a 35.3 percent direct interest
in Modelo, announced it would pay $20.1 billion dollars to acquire the portion
of Modelo that it doesn’t already own.

At the time, Anheuser-Busch CEO Carlos Brito praised the “tremendous
opportunity from combining two leading brand portfolios and further expanding
Grupo Modelo’s brands worldwide.”

The Justice Department sees the deal a little differently. In the lawsuit, the
government says that the proposed transaction would “enhance the ability of
Anheuser-Busch to unilaterally raise the prices of the brands” and “diminish
Anheuser-Busch’s incentive to innovate with respect to new brands, products and
packaging.”

Anheuser-Busch issued a statement contending the lawsuit is “inconsistent
with the law, the facts and the reality of the market place.” The company also
said it intends to “vigorously contest” the DOJ’s action.

Nonetheless, the brewing giant acknowledged Thursday that it no longer expects
to close the deal during the current quarter.

The proposed acquisition follows a continuing consolidation trend within the
beer industry as the largest brewers in the world have decided that bigger is
better. In 2008, Belgium-based InBev purchased St. Louis.-based Anheuser-Busch
for a hefty $52 billion. And Chicago-based MillerCoors is a joint venture
between two other companies, London-based SABMiller PLC and Molson Coors
Brewing Co. of Denver.

Concerns that the Modelo deal could fall through sent Anheuser-Busch shares
down $5.54, or 5.9 percent, to a New York Stock Exchange close of $88.60, while
Modelo’s shares tumbled $7.50, or 6.5 percent, to close at $108.50 in U.S.
over-the-counter trading